Property

Investing in Hanoi

With the PRC deciding to shift to a services-based economy — and with rising costs — manufacturing has flooded into Vietnam and buoyed its economy. Foreign direct investment in Vietnam was up 120% in the first quarter of 2016 from the previous year, and as of mid-2016, tech giants LG, Samsung, Nokia, and Microsoft, clothing labels Nike and Adidas and diversified Japanese behemoth Sumitomo were just a handful of global brands to relocate from China to Vietnam — Hanoi specifically. The Vietnamese capital is giving investors something to talk about.

The new ChinaThe question on many minds is how the United States’ withdrawal from the Trans Pacific Partnership (TPP) — which Vietnam was the biggest benefactor of — will affect its FDI and manufacturing industries. The short answer: not too much, as the remaining partners in the trade deal agreed to amend the plan and carry on without the US. “If you look at the type of products Vietnam was exporting 10 years ago it was a lot of garments, shoes and agricultural products,” says Andre Lim, general manager north office for Vietnamese developer CapitaLand. “If you look at the composition of the exports now, it’s mostly electronics and mobile phones. I think almost all of Samsung’s high-end phones are made in Vietnam.

At the end of the last crisis in 2009, most of the FDI that went into Vietnam was in real estate and hospitality in anticipation of a boom, but now it’s high-end manufacturing. They’re moving up the value chain.” The mobile phone market isn’t going anywhere, and regardless of how protectionist the Trump administration tries to be, American consumers are going to buy those phones, leaving Vietnam’s manufacturing industry healthy. Analysts tend to agree that Vietnam is at the stage China was 15 years ago and has few directions to go but up.

Aiding the investment, or helping to lure it, is a commitment to major infrastructure improvements in the city. Eight new road overpasses and underpasses are completed, under construction or under planning in Hanoi, with aims to improve traffic flow; a new 14-kilometre bus route with its own dedicated lane opened between Kim Ma and Yen Nghia in December; and the first two lines in a proposed 10-line metro system will open in 2018. Also in the works are a US$5 billion airport expansion and a new CBD at Tu Liem. Height restrictions and a lack of space in the traditional business hub at Hoan Kiem, made a new home for MNCs and Vietnamese corporations a priority for many years. With the JW Marriott, office developments Keangnam Hanoi Landmark Tower (the country’s tallest building), Handico Tower and retailing at Thang Long mall already in place, Tu Liem is set to grow.

For all seasonsHanoi is growing at a rate faster than Vietnam overall — 9.2% versus 6.5% — and property prices continue to lag regionally. Luxury properties are averaging HK$5,700 per square foot in Bangkok, $3,000 in Manila, $3,600 in HCMC and just $2,500 in Hanoi. High-end residences can clock in as low as HK$1,400 per square foot. Nonetheless residential investors are trickling in slowly. Amended laws making overseas purchases easier in 2015 helped, and Hongkongers, French, and Americans have been among the first to dip their toes in the market. The law changes have opened up the market, and “The first wave that came in to buy were very familiar with Vietnam,” says Lim. “It was people who already lived there, or with business relationships in Vietnam, a girlfriend or boyfriend and so on. The second wave was investors that may not be as familiar but realised it was a good opportunity.”

As a relatively new market, “Banks are not fast enough to respond with new mortgage products. So it will take some time for them to get approvals,” notes Asia Bankers Club CEO Kingston Lai of the financing issues that can still plague Vietnamese purchases. “When we started selling Thailand about five years ago there was only one bank offering mortgages. Now there are six or seven and the rates started to come down because of the competition.” Lai expects Vietnam to follow the same pattern.

For interested investors, CapitaLand’s Seasons Avenue is taking advantage of the city’s growth. The joint venture development (with Hoang Thanh Investment and Infrastructure Development Joint Stock Company) will ultimately comprise of four apartment towers located in an emerging prime district near Tu Liem. The first launched in Hong Kong, Sonata Premier Tower will feature a total of 332 two- and three-bedroom apartments ranging from 860 to 1,437 square feet, boasting contemporary design that maximises natural light and ventilation.

Sonata will be decked out with comprehensive facilities and amenities, including an indoor pool, a barbecue deck and alfresco dining space, garden, tai chi court, fully fitted gym, children’s facilities and much more. Also available are rental services for investors, concierge services and housekeeping. Come 2018, Sonata Premier will be perched almost directly atop Hanoi’s new metro lines in the new Ha Dong district (akin to Mid-levels), prompting CBRE to project gross yields in the neighbourhood of 7%. Of interest to Hong Kong buyers, Vietnamese stamp duties are just 0.5% on top of a sinking cost payable upon completion, bringing total transaction costs to 2.5%. Properties at Sonata Premier begin at roughly HK$1,400 per square foot.